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Research excerpt: Indirect procurement function needs to increase its coverage of indirect purchasing

Guy Strafford
Sep 21, 2011 11:46:00 AM

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Guy-New

A brief research snippet and commentary, around indirect procurement's coverage, as we prepare for our Enhancing and Redefining the Role of Indirect Procurement research study presentation.

About the research:

The in-depth study, developed in conjunction with NelsonHall, involved 120 CPOs and CFOs from FTSE 100 organisations across Europe and the US to better understand procurement'’s changing role within business today and tomorrow.

Focusing on indirect (or non-core / GNFR) procurement, the in-depth study identified a number of challenges and opportunities for global businesses in realising maximum benefits from indirect expenditure... read more >>

Research snippet:

Indirect Procurement Function Needs to Increase its Coverage of Indirect Purchasing

Overall, organisations estimate that 61% of their indirect spend is under management and that there is scope to extend the coverage of the indirect procurement function.

However, all of the organisations surveyed have areas of indirect/GNFR spend where the indirect procurement function is not involved. The profile of the areas of indirect/GNFR spend where the indirect procurement function is NOT involved within organisations includes:

  • CapEx
  • Professional services
  • BPO & long term services contracts
  • Engineering & technical services
  • Logistics & warehousing
  • IT & telecoms
  • Non-routine purchases

CFOs express relatively low levels of satisfaction with the level of control of indirect spend. For example, just 42% of CFOs express high satisfaction with the proportion of indirect spend under management within their organisation, compared with 83% of CPOs.

Given that the average indirect procurement function is resource constrained, organizations will be challenged to extend their category coverage, market knowledge, and proportion of indirect spend under management without using external services providers.

Proxima Commentary

It is clear from the above that board members and CFOs'’ desire to increase the level of spend under management as part of a wider corporate drive to contain costs.

However, given there is a 41% satisfaction difference between the value / outcomes the CFO is receiving and the value / outcomes the CPO is delivering, there is:

  1. A clear miscommunication / misalignment, between the two functions, in many businesses
  2. A lack of buy-in at the board level to invest more in closing this gap; which could be rooted in:
  3. A lack of education / understanding at senior executive level as to the benefits than can be realised through better managing this facet of business expenditure
  4. A lack of urgency or critical time-bound events to address this gap when given a long list of competing priorities
  5. Finally, per NelsonHall’s comment, the inability to deliver a satisfactory service (in the minds of senior executives) given current resources.

Combine these 5 challenges with the fact that in many organisations, where indirect procurement is still in its infancy, a major hurdle is simply getting involved at the right stage of the various department’'s procurement activity to add maximum value - in particular marketing and professional services.

With 50% of executives expressing low levels of satisfaction with the organisation'’s ability to maintain up-to-date supplier knowledge in relation to the current procurement of indirect goods and services, are we really that surprised procurement is not invited to the table to discuss more strategic initiatives?

Guy Strafford

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